Jack Pots the CEO of Audio Ltd is examining the relationship between advertising cost and sales revenues
Question:
Jack Pots the CEO of Audio Ltd is examining the relationship between advertising cost and sales revenues of the company’s audio products. Jack obtained the following data for the past 10 weeks: Month Revenues Advertising costs 1 $50 000 $2 000 2 70 000 3 000 3 55 000 1 500 4 65 000 3 500 5 55 000 1 000 6 65 000 2 000 7 45 000 1 500 8 80 000 4 000 9 55 000 2 500 10 60 000 2 500 Jack did a regression analysis and found the regression equation as follows: Monthly revenues= $39,502 + ($8.723 x advertising costs) Required (show your workings):
(a) Estimate the cost equation using the High‐Low method.
(b) Estimate the increase of revenues for each $1,000 spent on advertising within the relevant range using the High‐Low method.
(c) Estimate the increase of revenues for each $1,000 spent on advertising within the relevant range using the regression method.
(d) Compare the result of high‐low and regression method and give your recommendation which method should Donoghue use to predict the monthly revenues?
Business Statistics
ISBN: 978-0321925831
3rd edition
Authors: Norean Sharpe, Richard Veaux, Paul Velleman